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CS Professional · Internal and Forensic Audit · Internal Audit: Introduction and Overview

Arjun Pharma Ltd has a department of staff who report to the audit committee and periodically test whether the purchase-to-payment controls are working, then recommend improvements to management. How does this activity differ from internal control?

Internal audit is an independent appraisal that tests and evaluates the control system and reports to management or the audit committee, while internal control is the set of procedures management itself designs and operates for daily business. The review function sits above the controls, not in place of them.

  1. AIt is an independent appraisal of the control system, whereas internal control is the set of procedures management puts in place for daily operationsCorrect
  2. BIt is the set of day-to-day procedures that prevent errors, whereas internal control is the independent review of them
  3. CIt replaces internal control, since controls become unnecessary once such a department exists
  4. DIt is performed only at year-end by an external firm, whereas internal control is continuous

Explanation

Internal control is the system of policies and procedures designed by management to safeguard assets and ensure reliable records. Internal audit independently evaluates how well that system works and reports on it. It does not replace controls, and it is not restricted to year-end or to external firms.

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